Some States Try to Make All Americans Pay More Taxes. Has Yours?

Do you think you’re taxed enough already? Colorado and South Dakota say no, and they’re trying to get the courts to force their way on the whole country. Here’s how.

Photo by Kārlis Dambrāns on Flickr

In the Supreme Court case Quill Corp. v. North Dakota, the state of North Dakota had gone after the Quill Corporation, demanding the company remit sales taxes that North Dakota law required the company to pay. Quill was a Delaware corporation headquartered in Illinois. The company had no employees or presence in the state, having become one of the most successful mail order companies in the country, specializing in office supplies. Its only existence in the state was through catalogs mailed to customers.

Quill challenged the North Dakota law in state court, but of course the North Dakota courts sided with the state legislature over an out-of-state corporation. Quill then went to the US Supreme Court, and in a ruling that was unanimous in its first three parts, and 5-4 in the final part, the court ruled that the “Dormant Commerce Clause” requires a corporation to have a “substantial nexus” in the state, in order for the Constitution’s guarantee of freedom of interstate commerce not to apply.

This is why Amazon has gradually collected sales tax in more and more states, and now does so in every US state that has a sales tax. They have build warehouses and other operations in more and more states, and so were required to do so, even under Quill.

However that’s not good enough for Colorado and South Dakota. Those states wants to go after whatever deep pockets they feel like suing, and bring small businesses along for the rough ride. So South Dakota has sued Wayfair, Inc. and Colorado filed a friend of the court brief on South Dakota’s side.

Wayfair is a corporation based in Massachusetts that sells furniture and other domestic items online. They have offices in nine states and three European countries, but do not have any presence in Colorado or South Dakota except on the Internet.

The Colorado brief amounts to saying because it’s really inconvenient to follow the rules, we want you to change the rules:

The problem with the physical-presence rule is that it was first conceived of in 1967, two years before the moon landing and decades before the first retail transaction occurred over the Internet…. The rule is therefore not responsive to the “far-reaching systemic and structural changes in the economy” caused by the Internet….. If anything, the rule impairs rather than advances the Commerce Clause’s underlying objective of promoting a free market undisturbed by discriminatory advantages. Today, remote retailers, invoking Quill, effectively receive a subsidy because of how unlikely it is that their customers will ever pay the state sales and use taxes that they undeniably owe.